Watts Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $6.50 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 60% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct material ........................................... $2.00

Direct labor .............................................. 3.25

Factory overhead (60% of direct labor) ............. 1.95

Total cost per unit ................................... $ 7.20

If Watts Technologies Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 20% of the direct labor costs.

a. Prepare a differential analysis report for the make-or-buy decision.

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.